Dale Jackson

Personal Finance Columnist, Payback Time

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A new poll on financial priorities from CIBC reveals just how far away most Canadians are from a workable retirement plan. It found paying down debt is the top priority for 26 per cent of respondents, 14 per cent just want to keep up with day-to-day expenses and seven per cent want to take a vacation.

At the bottom of the list is saving for retirement, with only six per cent of respondents saying it’s their top priority.

What the poll doesn’t reveal is how many debt-burdened Canadians are even thinking about retirement. Saving money for retirement is essential but having a retirement plan can make that money go much further. A retirement plan could be as simple as a credible online retirement calculator, or as formal as a sit-down meeting with a financial advisor.

In any case, a retirement plan starts with asking yourself some basic questions that call for realistic answers and discipline. Even if they are best guesses, here are answers you will need before forming a retirement plan:        

Years to retirement: What is the time span between now and when you expect to retire? That answer could change as the plan becomes clearer, but it’s a starting point.   

Years in retirement: How long will you live after your retirement date? It’s a tough question that often depends on your personal health but many advisors suggest assuming you will live into your 90s. After all, it’s better to have more money than life than too much life and not enough money.

Retirement income: How much will you need to live in retirement? Some advisors recommend budgeting 60 per cent to 80 per cent of pre-retirement income. Living expenses tend to diminish as we get older but overestimating the cost of living can be a good inflation hedge.

Income sources: How much will you be able to draw from your registered retirement savings plan (RRSP), tax-free savings account (TFSA), company pension, Canada Pension Plan (CPP), Old Age Security (OAS) or other sources? Keep in mind this retirement plan assumes no debt.

Current savings and estimated contributions to retirement: How much have you saved so far and how much will you be able to save before you retire?

Inflation: How much will your cost of living increase each year? Many advisors estimate the cost of living will increase by an average of three per cent. 

Rate of return on investments: How much will your nest egg grow before and after retirement? That number depends on how much risk you are prepared to take. A diversified portfolio of equity and fixed income should generate an annual return of five per cent.